Correlation Between Datang HuaYin and Hangzhou Prevail

Can any of the company-specific risk be diversified away by investing in both Datang HuaYin and Hangzhou Prevail at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Datang HuaYin and Hangzhou Prevail into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Datang HuaYin Electric and Hangzhou Prevail Optoelectronic, you can compare the effects of market volatilities on Datang HuaYin and Hangzhou Prevail and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Datang HuaYin with a short position of Hangzhou Prevail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Datang HuaYin and Hangzhou Prevail.

Diversification Opportunities for Datang HuaYin and Hangzhou Prevail

0.96

Correlation Coefficient

Datang HuaYin  Hangzhou Prevail

Almost no diversification

The 3 months correlation between Datang and Hangzhou is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Datang HuaYin Electric and Hangzhou Prevail Optoelectroni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Prevail Opt and Datang HuaYin is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Datang HuaYin Electric are associated (or correlated) with Hangzhou Prevail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Prevail Opt has no effect on the direction of Datang HuaYin i.e., Datang HuaYin and Hangzhou Prevail go up and down completely randomly.

Pair Corralation between Datang HuaYin and Hangzhou Prevail

Assuming the 90 days trading horizon Datang HuaYin is expected to generate 1.34 times less return on investment than Hangzhou Prevail. But when comparing it to its historical volatility, Datang HuaYin Electric is 1.59 times less risky than Hangzhou Prevail. It trades about 0.17 of its potential returns per unit of risk. Hangzhou Prevail Optoelectronic is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,531  in Hangzhou Prevail Optoelectronic on September 12, 2024 and sell it today you would earn a total of  566.00  from holding Hangzhou Prevail Optoelectronic or generate 36.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Datang HuaYin Electric  vs.  Hangzhou Prevail Optoelectroni

Datang HuaYin Electric

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Datang HuaYin Electric are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Datang HuaYin sustained solid returns over the last few months and may actually be approaching a breakup point.

Hangzhou Prevail Opt

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Prevail Optoelectronic are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Prevail sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Datang HuaYin and Hangzhou Prevail

The main advantage of trading using opposite Datang HuaYin and Hangzhou Prevail positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Datang HuaYin position performs unexpectedly, Hangzhou Prevail can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Hangzhou Prevail will offset losses from the drop in Hangzhou Prevail's long position.

The idea behind Datang HuaYin Electric and Hangzhou Prevail Optoelectronic pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Share Portfolio module to track or share privately all of your investments from the convenience of any device.